Groupon... And The Difference Between Idea & Execution

from the all-about-the-execution dept

About a month ago, the folks at Planet Money did a nice podcast on the economics of Groupon. There's no doubt that there's a bit of a "coupon" bubble going on these days, with tons of companies crowding into the space, and (as the Podcast notes) a bunch of ex-Wall St. types jumping into the space with talk of creating derivatives on coupons/deals. At the same time, plenty of people have mocked Groupon and insisted that its model isn't sustainable and others can easily come in and kill Groupon. In fact, some of the Wall St. guys who stayed on Wall St. are saying that Groupon's value shouldn't be that high because anyone with a phone can copy them.

Lots of people are discussing Felix Salmon's excellent analysis of the economics of Groupon, which is really more about the fact that Groupon has dominated the space because it executes well. That is, it's not about the idea, it's about the execution. The fact that it has remained dominant despite so many copycats shows that just copying isn't enough. This doesn't mean that Groupon will always be the best at executing (in fact, I doubt it will be). But it's not so simple as just coming in and copying.

This is an issue that comes up all the time when we talk about business and intellectual property. People who haven't built up businesses like this assume that all you need is the idea -- and if an idea can be copied, then the company can't succeed. But that ignores just how important the execution element is. Salmon talks about how hard Groupon works to make sure its advertisers are happy with the results, to a level beyond most of its competitors. However, I think there's another element of Groupon's execution that hasn't received nearly enough attention: how enjoyable it makes the whole thing for consumers.

Groupon employs a bunch of writers who work hard to make sure all of the deals are compelling, enjoyable and fun. It always amazes me how much people underestimate the value of the quality of the writing in Groupon's offers. However, where it really struck me was a few months back, when I was researching some newer competitors to Groupon -- in particular, newspapers that were offering deals directly to compete with Groupon. In theory, newspapers should be able to absolutely destroy Groupon. If you're just standing on the mountain looking down, and seeing who has the advantages here, it's clearly the newspapers. Newspapers already rely on local advertising and deals, and have established long-term relationships in the market. On top of that, newspapers employ a ton of (mostly) high quality writers as well, so they should be able to create similarly compelling content.

And yet, when I was looking at various newspaper Groupon clones, what struck me was how boring and dull their offers were. Even if the deals themselves were comparable (and they often weren't), they just weren't that interesting or compelling to read. And that's because the newspapers -- like the Wall St. analyst above -- are engaging in cargo cult copying, where they think that all that matters is copying the superficial idea -- while missing the secret sauce that goes into the less obvious execution.

As a final aside, the quality of Groupon's content highlights another key point that we've raised many times before: how "infinite goods" like content make scarce goods more valuable. In this case, the "content" created by Groupon's writers (and, yes, this is also an example of how advertising is content) is valuable. But no one's selling the "content." What Groupon is doing is using that good content to make the scarcity of the deals more valuable, making more people willing to buy them.

In the end, I will admit that I have my doubts about the overall sustainability of Groupon itself, but it's not because "the idea" is easily copyable. I'm just not convinced that Groupon can continue to execute as well, and some aspects of what it's offering have some elements of a fad written all over them. But claiming that the company is overvalued because the "idea" is too easy makes little sense.

Where is the quality here Mike ????????????? All Gone !!!

Loooking at the "quality" of the first 5 or 6 articles you have on this web page today. It is very clear quality is not something you really care about either.

Why dont 'try' to write some articles that people will actually WANT to read ? and comment on ?

So how is your PAYWALL going Mike ??

We all know you must be getting desperate when you have to start looking at places like Surbia and their copyright to make your weak and pointless case. As if the people in surbia dont have far more important things to worry about.

Just like MOST of the planet who does not give a flying F^$K about your copywrite and patent wining.

Re: Where is the quality here Mike ????????????? All Gone !!!

Re: Re: Where is the quality here Mike ????????????? All Gone !!!

I've come to the conclusion that, for some, reading Techdirt is like having an abscessed tooth. You know it's going to hurt, but the compulsion to poke it is simply overwhelming.

Anyway, let's take a moment to congratulate Mike. Whereas he thought he was simply running a blog on contemparary issues of many things techy, little did he know that he was also providing a much needed outlet for the built up rage and frustration that daily life can bring down upon us.

Where else can one unleash such an emotionally raw and unbridled cry, free from the hidebound rules of both logic and grammar? Where else can one unfetter the pent up stress of everyday living and wail and gnash one's teeth without the inconvenience of eternal damnation?

Celebrate the Techdirt trolls of the world, who blithely and freely loose their more visceral and purulent emotive howls with complete disregard to discourse, and honour Mike for his steadfastness and generosity in providing an unrestricted forum for their enjoyment and gratification!

Re: Where is the quality here Mike ????????????? All Gone !!!

Groupon works well because it's good at making people think they are getting a good deal, when they aren't necessarily. And they also gouge their clients (the businesses). Groupon is more of a fad that won't last, because while people will go to great lengths to think they are saving money, most eventually figure out it's not worth the trouble or commitment.

Businesses will get wise

The biggest problem with Groupon's future is that businesses will get wise. What do I mean? There assumption is that you offer this great deal where the product or service is discounted by 50%. From the remaining 50% Groupon gets half and ultimately the business gets 25%. That's acceptable if you get regular clients from it. The problem is that the people that Groupon provides a business are low value clients/customers. They don't want to pay full price and always want deals, they require way more customer service, and they are not loyal. As a new business I could possibly see the value, but if you are established it's not worth the hassle.

People read that stuff?

Erm ... I'm a huge Group on customer, and I have no clue where you're coming from regarding the content. I read the Groupon-written deal "descriptions" a few times until I realized that they were always irrelevant. Who cares about anything beyond the deal details? Who wastes time reading long-winded, unhelpful, comedic-misfiring deal descriptions? I just don't get it.

If I want humor, I go to The Onion. If I want a ridiculous deal, I go to Group on.

Re: People read that stuff?

Execution versus ideas

To some extent, one must agree - without proper execution, ideas are just "vaporware".
To a larger extent, though, this shows the dangers of "pegging" on an extreme viewpoint.
For example, we pay more for health than any of the advanced nations. We have a lower quality of health care. A step in the right direction would be the current health care bill.
So, we peg on racism; it is "OBAMACARE", and it appears it will be defeated.
In all fairness, "balance" now means pegging on an extreme.

Re: :Where is the quality here Mike ????????????? All Gone !!!

There is this new fangled ability we have, it's called "choice". If I choose to read something and don't find it appealing, I stop reading it.

I know the trolls can't help themselves, and we have fed this particular troll until it is about to explode, but let us assume that he does know the simple way to avoid the rants and perhaps he will take the blog off his iGoogle home page....

i guess it's a matter of personal preference...for example, i can find good deals on Woot but the written banter that precedes the product description is so completely moronic, that i don't even make Woot a daily stop anymore.

uhm do i need one

persomally i like these reports "if you will" they help me save time in some cases as this is one of several sites i use to get opinions of what products, sites, services i might use. i use this a lot as most sites are not open forum so finding a negative remark is well 1 not likely or 2 fake as all hell.
and once in a while the trolls are kinda of funny but mostly lame. so thank you mike or who ever rights all of these tech dirts for all your work, be it hard or not, on target or slightly off.

I have to disagree with Mike's analysis on this. Yes, execution is clearly very important for any idea, particularly when it comes to websites/apps etc. But this is a bad example.

1. As another commenter mentioned, the kind of people who use Groupon (or similar sites) are the kind of people who want to save money. A cute description is fine, but the #1 common trait among all Groupon users is that they want to save money. They use Groupon so they can get good deals, and that is primarily what they care about. If other sites can provide better deals, they will use those (not that they are necessarily mutually exclusive.)

2. Groupon was the first to bring this idea to mass market. So, they have a head start in terms of their userbase and brand reputation. (For what it's worth, the idea of group buys has existed long before Groupon, particularly in the world of pro audio software, where most businesses run such promotions themselves.)

Mike's absolutely right that execution is important for any good idea. But in this case, the barrier of entry to put together a site for group buys is extraordinarily low. It takes very little execution ability to meet or beat the primary function of such sites (which is not cute descriptions, but providing good deals.)

A better example would have been a company like Apple. MP3 players (quite advanced ones, in fact) existed before the iPod, but Apple took the idea and executed it very well. I remember when the iPod first came out, and I compared it to other MP3 players of the time, several of which I owned. There WAS no comparison, design-wise. The other players might have been more powerful, but the iPod had far better execution, and I ended up getting one.

Designing hardware and software interfaces is NOT a simple task. On the other hand, setting up group buys/discounts is.